OK, here's my situation (there is a TL;DR version in the last paragraphs of this massive post, don't worry).
ASUS P7P55D VIA VT1828S, S/PDIF DTS Audio/Dolby Digital 44.1 kHz/48.0 kHz/96.0 kHz, through TOSLINK to Sony BDV-E380 Digital In Optical (TV)
Nvidia GeForce GTX 560 Ti, Dolby Digital 44.1 kHz/48.0 kHz, through Mini-HDMI to Sony KDL-55EX723 HDMI In 2
Sony BDV-E380 HDMI Out (ARC) through HDMI to Sony KDL-55EX723 HDMI In 1 (ARC)
PC Win7 x64 set to use Nvidia GeForce GTX 560 Ti as audio/video output (thus sending both audio and video to HDTV)
HDTV set to use Audio System as audio output (this makes its HDMI In 1 ARC become downstream I presume, outputting audio to Home Theater System instead of inputting from it)
HDTV set to use HDMI In 2 as audio/video input (thus receiving both audio and video from PC Win7 x64)
Home Theater System set to use 'TV' as audio input with ARC on Auto (remember that Digital In Optical on the Home Theater System was called TV)
HDTV, Home Theater System, and onboard PC Win7 x64 audio all upgraded to latest versions via Sony online updating or ASUS website as per 2012-18-06
With this configuration my PC Win7 x64 sends audio/video to the HDTV, which then sends the audio down its HDMI In 1 ARC to the Home Theater System, and this works as intended; I receive video on the HDTV and the Home Theater System plays any audio I have the PC Win7 x64 playing at the moment.
The problem is I can only output 2-channel stereo audio from my Nvidia GeForce GTX 560 Ti and not 5.1 or 7.1 surround sound, which is why I added in the TOSLINK from the PC Win7 x64 to the Home Theater System.
I then tried setting my PC Win7 x64 to output audio via onboard S/PDIF through the TOSLINK to the Home Theater System in the Playback settings on Windows.
When I do this my Home Theater System plays no audio even though I can see the volume bar in Windows jumping up and down from 10% to 80% rapidly, indicating that Windows is atleast forwarding audio to S/PDIF.
I have tried setting my HDTV audio output to TV Speakers to make ARC upstream, thus attempting to avoid confusing the Home Theater System with audio inputs coming from both the HDTV and PC Win7 x64 at the same time.
I have also tried setting Audio Return Channel to Off on my Home Theater System, disabling ARC entirely, and even unplugging the HDTV to Home Theater System HDMI cable entirely; but neither this nor using upstream ARC has made the Home Theater System play audio from my PC Win7 x64 S/PDIF via TOSLINK.
I think all hardware and software connections are set up correctly, especially when ARC is disabled, because if I disable ARC on the Home Theater System and connect the TOSLINK between Home Theater System and TV I can get surround sound from my TV when watching HD TV channels, so I know the TOSLINK is not broken and does not need replacing (I bought the TOSLINK 2012-06-19).
Maybe I have to make an internal cable connection from motherboard to TOSLINK port on the back of the computer chassis (seems I don't have to: the manual states the SPDIF_OUT connector on the motherboard is for an additional S/PDIF coaxial/optical output port; the onboard TOSLINK port I use is already connected). Maybe I have to use 32-bit audio drivers when connecting via TOSLINK to the Home Theater System?
Anyway, here is the TL;DR version of the above: Since my TOSLINK cable is not broken I can only see the latest VIA VT1828S drivers as being the problem when playing PC Win7 x64 audio on the Home Theater System (when using TOSLINK to transmit audio signal I am not using GeForce GTX 560 Ti drivers for audio output).
After over 18 hours of troubleshooting, reading manuals and PC/HIFI forum posts I am still clueless as to why I get no Home Theater System sound from my PC Win7 x64 via TOSLINK. Any help resolving this problem would we well appreciated, even if the advice is buying a dedicated audio card (as long as there is a decent enough argument for why this will resolve the issue).
PS: Is there a reliable and cheap way to test whether my PC Win7 x64 is actually outputting a signal through the TOSLINK? I see a red dot at the end of the cable when it is plugged into the PC Win7 x64 and the other end is disconnected, so I would assume SOME signal is being transmitted atleast.